MoneyTalks: The lithium sector is running hot once again and this stock is outshining the rest

MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from Seneca Financial Solutions CEO and investment adviser Luke Laretive.

What’s hot right now?

Spodumene prices have strengthened to above US$4,000/t and ASX lithium share prices have followed suit.

Although down from their lofty ~US$6,000/t heights achieved in late 2022, prices are still well above long-term analyst consensus, Laretive says.

“Over the last few years, most brokers and analysts forecast have underestimated actual lithium prices.

“This was epitomised in January of this year when lithium ‘perma-bear’ UBS upgraded its lithium price forecasts by up to 50% admitting that they had previously underestimated demand from North Asian battery makers and electric vehicle buyers,” he explains.

“While other bulk commodities like iron ore are destined to grow roughly in line with GDP, we think commodities like lithium will be structurally supported by growing and above-consensus EV and battery storage demand.”

Major miners are also starting to show their hands when it comes to lithium projects, Laretive adds.

“Albermarle’s escalating offers for Liontown Resources have been rejected thus far based on undervaluing the company but other strategic interest of note was Rio Tinto buying into the Quebec region of Canada in June with prospective ground from Midland Exploration,” he says.

“Although RIO has previously expressed their interest in lithium, they had been cautious in overpaying for assets.”

Laretive says the lithium sector is running hot again and this is demonstrated by the appreciation of lithium shares in companies such as Patriot Battery Metals (ASX:PMT) – which has seen a 132% surge year to date on anticipation of a maiden resource estimate – and Delta Lithium (ASX:DLI).

“Delta Lithium is up 83% year to date and has caught investors’ attention with the prospectivity of its Yinnetharra project, in addition to their near shovel-ready Mt Ida project in the gold fields of Western Australia,” he explains.

“The other factor supporting the share price is the news, confirmed by DLI, that resources heavyweights Hancock Prospecting (Gina Rinehart) and Mineral Resources have been buying shares of DLI on market, amassing stakes of 2-3% respectively.”

Top pick

But when it comes to hard rock lithium, Laretive says the Greenbushes project in Western Australia is the pre-eminent hard rock lithium deposit globally.

“Greenbushes is the largest hard rock lithium mine in terms of both scale and resource grade, and IGO (ASX: IGO) owns 25% of it through a joint venture,” he says.

“Grades verging on 2.0% Li²O are up to 50% higher than the ASX peer group.

“At Seneca, we like to invest in low-cost miners that can weather the storm in periods of lower commodity prices (think BHP, RIO).

“Greenbushes has an extensive operating history since 1983 and a remaining mine life of ~25 years – it takes up approximately the entire first quartile of the lithium cost curve.”

Macquarie estimates 71% of IGO’s value is attributable to lithium (Greenbushes and associated refinery), with the balance coming from nickel assets.

“IGO is being priced cheaper than peers, as if lithium prices will settle to ~$1050-1100/t long term (peer average ~$1400/t),” Laretive continues.

“For reference, lithium spodumene concentrate prices are currently in the ~US$4000/t range, providing a healthy margin of safety and near-term cash flow generation opportunity for IGO.

“IGO shares have appreciated 11% since 1 January 2023 and may have more upside over the medium to long term.”